October Industrial Production Beats Estimates

Industrial production expanded by 0.7% in October, beating analyst estimates of 0.4%. However, the reading for September, initially reported at .2%, was revised down to -.1%. That being said, actual two month industrial production is right in line with analyst estimates. The graph below demonstrates how this sector continues to be a source of support for our recuperating economy.

 Specifically, this production data measures the total output of manufacturing, mining, electric and gas industries in the United States. At current levels, industrial production is still 5.3% below pre-recession levels.

The Federal Reserve published a nice breakdown of the industry groups that contribute to industrial production:

"Manufacturing output increased 0.5 percent in October and was 4.1 percent above its year-earlier level. In October, the factory operating rate moved up to 75.4 percent, a rate 11.0 percentage points above its trough in June 2009 but still 3.6 percentage points below its long-run average.
The output of durable goods increased 0.8 percent in October and has gained 7.8 percent in the past 12 months. Advances of at least 2 percent were reported in October for electrical equipment, appliances, and components; motor vehicles and parts; and aerospace and miscellaneous transportation equipment. In contrast, losses of 2 percent or more occurred for wood products and nonmetallic mineral products.


The index for nondurable manufacturing rose 0.2 percent in October. Among the major components of nondurables, the output of apparel and leather jumped 2.8 percent, and gains were also registered for food, beverage, and tobacco products; chemicals; and plastics and rubber products. Decreases were recorded for textile and product mills, paper, printing, and petroleum and coal products. The index for other manufacturing (non-NAICS), which consists of publishing and logging, declined 0.2 percent.


The output of mines climbed 2.3 percent in October, with gains in each of its major components, after having dipped 0.5 percent in September. Capacity utilization in mining moved up to 92.7 percent in October, a rate 5.3 percentage points above its long-run average. The output of utilities edged down 0.1 percent, and its operating rate declined to 77.5 percent, a rate 9.1 percentage points below its long-run average.


Capacity utilization rates in October at industries by stage of process were as follows: At the crude stage, utilization increased 1.5 percentage points to 89.9 percent, a rate 3.5 percentage points above its long-run average; at the primary and semifinished stages, utilization edged down 0.1 percentage point to 74.0 percent, a rate 7.3 percentage points below its long-run average; and at the finished stage, utilization rose 0.7 percentage point to 77.2 percent, a rate 0.1 percentage point below its long-run average."

Source: Federalreserve.gov

What is Quantitative Easing?

Quantitative easing is a government monetary policy used to inject liquidity and increased lending into the system by expanding the federal balance sheet. The Federal Reserve will typically purchase government securities, thereby increasing the supply of dollars in the market. Their hope is that this will increase consumer spending and stimulate the sluggish economy.

During this unconventional process, the Fed walks a fine line of fueling the economy and creating inflation. However, with rates close to zero, this is usually not a problem.

Another result of quantitative easing is the devaluation of the currency. Because the money supply is now larger, each dollar is worth slightly less. This directly impacts the country's imports and exports in the following way: those who import goods are harmed by a weaker dollar and exporters benefit by increased demand for their less expensive goods.